Former Bell City
Manager Robert Rizzo “acted reasonably” and did not intend to loot city funds,
his attorney said in seeking to force an insurance company to pay his legal
costs.

James Spertus
made the argument before a Ninth U.S. Circuit Court of Appeals panel hearing
arguments in Pasadena Thursday.

While up to his
knees in a public corruption scandal, Rizzo sued Insurance Company of the State
of Pennsylvania in 2012 for refusing to pay his legal bills in criminal and
civil actions filed by state prosecutors.

Rizzo’s march
toward conviction began in September 1994 when the city hired him as a chief
administrative officer. His annual salary of $300,000 ballooned to $800,000 by
the time he resigned in the summer of 2010, meaning he made twice as much as
the president of the United States.

He was sentenced
to 12 years in state prison after pleading no contest to 69 felony charges of
misappropriating public funds, hiding and falsifying records, perjury and other
crimes. He was also ordered to pay $8.8 million in restitution for his part in a
scheme that almost bankrupted the city.

But during
Thursday’s arguments, Spertus argued that his client never intentionally looted
public funds.

The attorney
made the extraordinary assertion as he sought to persuade the panel that the
insurer improperly denied coverage based on exclusions for criminal and
fraudulent acts.

“There is
nowhere in the record that shows that Mr. Rizzo’s conduct was intentional,”
Spertus said. “The inferences to the contrary are simply wrong. The attorney
general dismissed his case.”

No Accident

“What do you
mean? You mean he did it by accident?” Senior Judge Joseph Jerome Farris asked.

Spertus
clarified that the California attorney general’s civil allegations of
professional negligence and fraud were dismissed. Nothing in the record made
clear that claims arising from Rizzo’s conduct were “inextricably intertwined”
with claims that were not covered under the policy, the attorney said.

“I thought on
this record there’s no dispute about what he did,” Farris said.

“There’s
absolutely a dispute about what he did,” Spertus said.

“He didn’t
collect the money? He didn’t take the money?” Farris asked.

“No,” Spertus
said. “He acted reasonably. There’s no law that would prohibit the salaries
paid, anywhere in any statute, anywhere.”

Spertus made the
comments after the insurance company’s attorney, Sara Thorpe, urged the appeals
court to uphold U.S. District Judge Dolly Gee’s judgment in their favor.

Thorpe, a
partner with Nicolaides Fink, argued that the policy excluded coverage for
criminal acts and that Rizzo did not qualify as insured because the policy only
covered officials who were acting on Bell’s behalf.

“The victim here
is the city,” Thorpe said. “It makes absolutely no sense here for the city’s
own insurance policy to be defending the perpetrator, Mr. Rizzo, against claims
by the city.”

In late 2010,
the insurance company informed Rizzo in writing that it would defend him
against the state’s civil action and a cross-complaint filed by Bell. But the
insurer withdrew the offer by spring of the following year.

No Contract

Sitting by
designation, U.S. District Judge Jon Tigar of the Northern District of
California asked Thorpe whether the letter created a legally binding contract.

Tigar said:
“What I’m hearing you saying is, ‘No there wasn’t. But moreover even if there
was, so what because we could sue to get reimbursement if we wanted to.’ Fine.
That’s a tactical decision an insurance company can make down the road. But it
doesn’t answer the question of whether a contract was created.”

Thorpe was
adamant that the reservation of rights letter it sent to Rizzo was not a
contract.

“There is no
offer, acceptance, consideration here. There is no contract,” she said.

Judge Jay Bybee
sat with Farris and Tigar on the panel.

During Rizzo’s
tenure, the six highest-paid administrators in Bell were paid combined annual
salaries of $6 million.

Rizzo paid
himself an additional $400,000 each year for unused sick and vacation time. He
wrote his own employment contracts, set up a pension fund that would have paid
out $8 million when he retired, and gave loans to himself and those below him.

Rizzo had
previously sued the city, claiming that his employment contract required it to
defend him in the civil and criminal cases. But in a 2013 decision handed down
the day after he entered his plea, Div. Three of this district’s Court of
Appeal overturned Los Angeles Superior Court Judge Ralph Dau’s ruling in
Rizzo’s favor.

Justice H.
Walter Croskey, since deceased, said the employment contract’s indemnity clause
only required the city to defend claims by third parties and was “not
reasonably susceptible of an interpretation that it also releases Rizzo from
any liability to the City itself,” nor could the obligation to defend extend to
such claims.